Too-big-to-fail banks’ profits almost entirely paid for by taxpayers

UPDATE: A new analysis shows that the federal subsidy for too-big-to-fail Big Banks is actually ten times larger than once thought. It’s on the order of $780 billion a year. That’s equal to the size of the entire stimulus bill, but every single year forever. The stimulus bill was a one-time shot for $787 billion, this is that much money every year.

In an alarming new study we learn that America’s largest banks are living on thin financial ice. If it weren’t for government-sponsored corporate welfare, to the tune of $83 billion a year, America’s top five too-big-to-fail banks would only break even financially.

But the system is rigged to actually create and sustain “too big to fail” — to give these banks an incentive to seek bigger and bigger government subsidies, and bailouts.

A really good analysis from Bloomberg:

Banks have a powerful incentive to get big and unwieldy. The larger they are, the more disastrous their failure would be and the more certain they can be of a government bailout in an emergency. The result is an implicit subsidy: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail….

How much are those lower rates worth to the banks?  Bloomberg comes to a shocking conclusion:

Wall Street

Wall Street via Shutterstock

Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of $83 billion a year. To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.

The top five banks — JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc…. with almost $9 trillion in assets, more than half the size of the U.S. economy — would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.

That last line is both chilling and infuriating: “the profits they report are essentially transfers from taxpayers to their shareholders.”

Without the subsidy, the banks only break even.  We the taxpayer are quite literally keeping them alive through unfair competition.  Our taxes are their profits.

The banks regularly bully their way into soft regulation, easy money and a dominating position over the political class — who knew they were just a bunch of paper tigers?  Well, actually, all of us knew, from Paul Krugman and Joe Stiglitz down to the progressive blogs.

So why is this issue important? For starters, there is a lot of taxpayer money involved, and as we’ve already witnessed, these too-big-to-fail banks can bring us all down, quickly. Second, it’s not exactly cheap bailing them out, and the losses to the broader economy go well beyond just the banking industry.

Also, and perhaps more important, is that these banks make up the business class that’s at the forefront of the assault on what’s left of the social safety net. You may recall Goldman Sachs CEO Lloyd Blankfein, the guy who Obama has a strange bromance with, adjusted bonus payout dates in both the US and UK to avoid paying taxes. You know, as in the taxes that saved his entire lifestyle.

Lloyd Blankfein, CEO of Goldman Sachs

Lloyd Blankfein, CEO of Goldman Sachs. Source: Financial Times

Even worse is Blankfein’s insistence on bashing programs that are critical to middle class Americans. It’s the Blankfeins of the world that want to take your Medicare and Social Security away.  God forbid we ran out of money and there weren’t any left to bail out the banks next time, right?

Then there’s my other favorite bankster, good old Jamie Dimon of JPMorgan. Dimon is the delightful fellow who ignored the warnings and ended up costing the bank, and our taxpayers, billions.

Since these banks really aren’t turning a profit without government welfare, what would JPMorgan look like without those handouts? For Dimon, banking rules that help protect taxpayers from bailing out the gambling banks are “un-American.”

The major bank chiefs have been quite vocal about trashing the social system, just as they trashed our economy. But when it comes to helping Americans, the banks have little interest beyond their next bailout.

It’s time for the political class to wake up and realize that these people are destructive to society, instead of inviting them to play rounds of golf or join discussions about job creation. Job creation is not their goal. Their goal is to squeeze tax dollars, while bleating on about the free market, while they pick your grandmothers pocket.

Their record confirms this is the hard truth of the day.


An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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